Good morning. Innovation isn’t invention, it’s incremental improvement, and that can lead to huge dividendsMacy's Inc. certainly didn’t invent the idea of having stores double as distribution centers for online sales. But while most multichannel retailers simply use inventory from stores closest to the customer, minimizing delivery costs, Macy’s took things a step further this year and added store inventory levels to the equation, allowing the company to avoid depleting stocks in one store while having to put the same item on sale at another location because it hadn’t sold enough of it. The specific weighting of distance and inventory is their secret sauce, but the results are there for all to see. During a holiday season that had most retailers shaking their heads, Macy’s turned in a robust 52% gain in online sales and a 4% pop in overall sales compared to December 2011. “The combination of lowering shipping costs and preventing a future markdown helps to improve margins,” Macy’s spokesman Jim Sluzewski told CIO Journal.

Yes, we’re afraid of newfangled stuff. We figured IT leaders would recoil at the implications of our story about VCs steering their portfolio companies away from selling to CIOs, who were portrayed as risk-averse and too slow-moving. But CIOs we spoke with agreed that, yup, they’d rather stick with the devil they know. For instance, Land O’Lakes Inc. CIO Barry Libenson says he won’t take random calls from startups because of the risks associated with unproven technologies. “I don’t get rewarded for taking a huge risk and having it pay off, but I get heavily penalized if we take a risk and screw something up,” Mr. Libenson tells CIO Journal. And Greg Fell, CIO of global manufacturing firmTerex Corp., says embracing new technologies is too risky at a time when CIOs are responsible for complying with federal data protection standards, and provide audit committees with risk assessments. But all isn’t lost — Mr. Libenson says he will take calls from veteran venture capitalists he trusts to have vetted their young charges, and tests technology from companies he doesn’t know based on recommendations from peers.

Old dog, new tricks. Don’t count Caterpillar Inc&lt;., founded in 1925, and Etratech Inc., an electrical components manufacturer, among the faint of heart. They’re embracing social networking despite some concerns about reputational risk, and in the case of Caterpillar, are even porting data gleaned from social media to the back end tools used to manage sales and inventory. That turns Facebook Inc. into more than just a listening post, and illustrates why marketing chiefs should work hand-in-glove with technology executives, rather than lone-wolfing their forays into social media. William Burrows, business development manager at Etratech, says the company’s use of YouTube videos to showcase its manufacturing plant has shortened sales cycles considerably. “It’s usually a deal-closer,” he told CIO Journal.

TWO PERSPECTIVES ON BIG DATA STAFFING

Focus on data scientists to unlock Big Data’s promise. Guest Columnist Irving Wladawsky-Berger says experts are questioning whether it is big data per se that we should be excited about, or the emerging data science disciplines, which aim to leverage big data to discover new insights, enhance decision making, improve the effectiveness of people-oriented processes and optimize the overall management of social organizations like cities, companies and economies. He says that the term Big Data implies an emphasis on data, while the term data scientist puts the emphasis on science. “Data scientists should have a hybrid set of skills: the IT skills that are necessary to deal with and analyze vast amounts of data; and the subject matter skills needed to know which valuable business insights can be extracted from the data, and how to best frame the questions and build the right model that will reveal these insights,” he writes.

Or think about data scientists as fantasy baseball team owners. If your employees play fantasy sports, they’re ready for Big Data, argues guest columnist Jeffrey M. Kaplan. ”In the same way today’s mobile technologies have turned yesterday’s geeks into mainstream technologists, fantasy sports has spawned a new generation of analytics-hungry workers who no longer view statistics as the sole domain of nerds and mathematicians,” he writes. The confluence of social networking, cloud, and fantasy sports has created the hydra-headed persona needed to handle Big Data analysis. “Today’s corporate employees – trained on the virtual fantasy sports fields of Yahoo , ESPN and elsewhere – are further up the statistical analysis learning curve than many of the BI specialists and business analysts of the past. And these ‘digital natives’ are happy to capitalize on the latest cloud-based BI apps to perform their day-to-day jobs.”

CES NEWS

Electronics develop a sixth sense. Tech companies are striving to help gadgets more effectively exchange information and track users’ movements, gestures, voices and anticipate their intentions. A hot buzz phrase at this year’s Consumer Electronics Show is “context awareness”—enabling products like smartphones or set-top boxes to pick up clues to users’ desires and respond without the need for commands, writes the Journal’s Don ClarkQualcomm Inc. describes the smarter devices as offering a “digital sixth sense.” AMD’s senior vice president and chief technology officer, Mark Papermaster, calls the trend “surround” computing, whileIntel Corp&lt;/strong>. describes techniques like interpreting facial gestures with PCs as “perceptual computing.”

TV makers search for the next sensation. Almost every major electronic device you own is a black rectangle that is brought to life by software and content. So how can hardware companies make their products stand out in a sea of black rectangles? “The hardware is no longer what’s driving the future,” James L. McQuivey, an analyst for Forrester Research, tells the NYT’s Brian X. Chen. More exciting things are happening in software, Mr. McQuivey says. Dozens of tablets are on the market, but Apple and Amazon lead the pack because of the impressive apps and digital content available for their devicesSamsung Electronics Co.Sony Corp LG Electronics Inc.and Panasonic Corp&lt;/strong>. are trying to grab attention by supersizing their television screens and quadrupling the level of detail in their images. And manufacturers continue to push the idea of “smart” sets by adding apps and other interactive elements.

Microsoft finds living room draws a crowd.Microsoft Corp. transformed its Xbox from a videogame machine into a multipurpose entertainment hub. Now, the 11-year-old hardware line is facing its stiffest competition yet, writes the WSJ’s Shira Ovide. The outcome of the battle might come down to how Microsoft updates the Xbox, which some industry watchers say could happen by the end of 2013. Executives have considered whether the next Xbox should come in two versions, a powerful but more expensive console primarily for gaming, and a stripped-down, less-expensive version intended mainly for watching video and performing online tasks.Nvidia plans to sell its own gaming device. Nvidia Corp. plans to change its strategy by selling a gaming gadget of its own directly to consumers, the WSJ’s Don Clark reports. The company disclosed plans for an unusual portable device that can run its own gaming software and wirelessly stream games running on powerful home computers. It can also wirelessly send the game images to be viewed on high-definition TVs in addition to its own small screen. Nvidia didn’t disclose the price of the device or say when it would be available, but the Sunday night announcement at CES struck some observers as one of the show’s first real surprises.

TECHNOLOGY NEWS

Life and death online: Who controls a digital legacy? Although people are spending and documenting more of their life online, society has not quite figured out what to do with the megabytes of personal information once someone dies. The WSJ’s Geoffrey Fowler recounts the struggle of one family to claim the online photos and writings posted by their daughter on online properties run by Facebook, Tumblr, and YahooInc. before she died of cancer. In 1986, Congress passed a law forbidding consumer electronic-communications companies from disclosing content without owner consent or a government order. Although that law predates the rise of the commercial Internet, courts and companies have largely interpreted it to mean that the families can’t force companies to let them access the deceased’s data or their accounts. There are movements to change the law, but tech companies fear that allowing the living access creates other privacy issues.Behind Google 's antitrust escape. People familiar with the FTC’s antitrust probe of Google Inc. say that while FTC staff felt that the search giant engaged in questionable behavior, they could not come up with a theory showing how consumers were harmed, the WSJ reports. While FTC staffers mulled, Google stepped up its presence in Washington, D.C., spending more than $14 million in 2012.

Google deal with FTC could turn heat off patent disputes. While the FTC stopped short off slapping Google with antitrust penalties, it did manage to get Google to agree to other restrictions that could have broader implications on the technology industry, reports Reuters’s Andrew Longstreth. As part of a deal, Google agreed to stop seeking injunctive relief against competitors in certain payment disputes. “Unlike a court decision, the FTC’s agreement with Google is not binding on other companies,” says Longstreth, “But it could give leverage to defendants in disputes with essential patent holders that could be used in court.”

Google’s Schmidt Lands in North Korea. Google’s Eric Schmidt landed in North Korea, which his delegation said he’s visiting—over objections from Washington—because he wants a firsthand look at the economy and social media there. The Associated Press said that the mission, undertaken with former New Mexico Governor Bill Richardson, was a humanitarian mission. ”We’ll meet with North Korean political leaders. We’ll meet with North Korean economic leaders, military. We’ll visit some universities. We don’t control the visit. They will let us know what the schedule is when we get there,” Mr. Richardson said.

Hulu CEO to depart. Hulu LLC CEO Jason Kilar said Friday he will leave the streaming video service in the first quarter, reports the WSJ’s Christopher S. Stewart. Hulu is owned by several entertainment companies, including Walt Disney Co. and WSJ parentNews Corp. and Mr. Kilar’s departure comes amid intense debate between some partner’s about Hulu’s future strategy. Hulu, which streams TV shows and movies, competes against Netflix and Amazon.com Inc.‘s Prime Instant Video service. The WSJ reported last month that he had asked the site’s owners to invest about $200 million to fund more programming development—roughly double what the partners contributed to the company the year before.

Phablets are so hot right now. Looks like those “giant” smartphones with 5-inch screens first made famous with the Samsung Galaxy Note are gaining hold. Reuters’s Jeremy Wagstaff and Lee Chyen Yee report that ZTE Corp. and Huawei Technologies Co. both plan to launch their own supersized phones, also known as “phablets” for their tablet-like dimensions.

IBM services chief to retire. IBM Corp. said Michael E. Daniels, head of its services division, will retire in March, reports the WSJ’s Spencer Ante. IBM didn’t appoint a new singular head to lead its services division. Instead, the company said, responsibility for running the group would fall to its two other top executives, Bridget van Kralingen and Erich Clementi.

Congress may consider mobile tracking bill. Sen. Al Franken (D., Minn.) is pushing a bill requiring that makers of apps that track user locations get user consent and notify users how their data is being shared, reports the NYT’s Natasha Singer. The bill dovetails with beliefs by some advocacy groups that location tracking is an unacceptable commercial intrusion. Needless to say, many marketers are not happy, saying that they need to have access to user location so they can direct relevant mobile ads.

Flextronics CEO sees hope for U.S. manufacturing. The CEO for Flextronics International Ltd., a Singapore-based company that provides logistics and manufacturing services for companies, says its getting “easier to justify” production in the U.S., reports the WSJ’s James Hagerty. CEO Mike McNamara cited a declining difference in labor costs between the U.S. and Asia as well as aggressive outreach programs by local officials as reasons to believe that even smartphone production may return to the U.S. But McNamara noted that the process will remain “slow and evolving” given relatively high U.S. taxes, health-care expenses and other regulations.

EVERYTHING ELSE YOU NEED TO KNOW

Opinions harden ahead of budget battle. The coming debt-ceiling standoff is already taking shape. Senate Minority Leader Mitch McConnell told ABC’s “This Week” on Sunday that Republicans won’t accept further tax increases in negotiations. Sen. Dick Durbin of Illinois, the Democrats’ No. 2 leader in the Senate, was on another program calling for more revenue by scaling back tax breaks. The latest round of comments leaves “unclear whether and how lawmakers would proceed with the push toward a comprehensive overhaul of the tax code,” the WSJ says.

Junk bond boom could fade. Junk bonds have started off 2013 much like they finished 2012—on fire. But the surge in prices doesn’t leave much room for more gains, write the WSJ’s Matt Wirz and Patrick McGee. With borrowing rates at record lows, companies are raising new debt to call outstanding bonds. High-yield issuers bought back some $101 billion of bonds in 2012 — a 16-year high and a 38% increase over 2011. “It is the reason there’s very limited capacity for bond prices to push significantly higher,” said Oleg Melentyev, credit strategist at Bank of America.

How some companies push the limits of a tax break. The NYT’s David Kocieniewski looks at how the practice of exchanging one asset for another without incurring taxes has spread to big companies — far beyond the family farmers the tax break was intended to help. It’s hard to gauge the true cost of the tax break for like-kind exchanges, like those used by CendantGeneral Electric and Wells Fargo. The government estimates that it diverts less than $3 billion a year from the Treasury, but industry statistics suggest the number could be higher. The tax break also exposes a huge vulnerability of the tax system: It depends on voluntary compliance. The IRS staff “is so outnumbered by tax lawyers and accounting departments at major corporations that there is often little to prevent taxpayers from taking a freewheeling approach to interpreting and administering the rules,” Mr. Kocieniewski writes.

Banks near foreclosure settlement. Banks were closing in on a $10 billion foreclosure-abuse settlement with regulators that could be announced as soon as today, the WSJ reports. Hopes for a deal got a boost after the Fed backed down on a demand for more compensation for consumers and other changes to the pact. Under the settlement, reviews of some individual borrower files will end and the banks are expected to pay a total of $3.75 billion in cash and the balance in other forms of borrower relief.

The factors that render the electrical grid vulnerable to cyber attack are strikingly similar to the cyber risk issues faced by health care, financial services, and other industries. But one recent malware campaign targeting utilities shows just how exposed the grid remains to cyber threats.